This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Why Not Just Eliminate the Employer Mandate?

By Linda J. Blumberg, John Holahan, and Matthew BuettgensUrban Institute, May 2014

￼￼Controversy over the Affordable Care Act’s employer mandate continues. The requirement’s implications for coverage are small, and yet the negative labor market effects of keeping it in place could harm some low-wage workers.

Under the law, employers of 50 or more workers are subject to a penalty if at least one of their full-time workers obtains a Marketplace subsidy. Employees offered coverage deemed affordable and adequate are prohibited from obtaining subsidies, as are their family members, and employers can avoid penalties by offering coverage to at least 95 percent of workers. However, the Administration has delayed the requirements until 2016 for employers of 50-99, for larger employers until 2015, and softened requirements for that first year. Yet there are anecdotal reports of employers changing labor practices even though penalties have yet to be implemented.

Our analyses as well as that of others find that eliminating the employer mandate will not reduce insurance coverage significantly, contrary to its supporters’ expectations. Eliminating it will remove labor market distortions that have troubled employer groups and which would harm some workers. However, new revenue sources will be required to replace that anticipated to be raised by the employer mandate.

Conclusion

In summary, eliminating the employer mandate would eliminate labor market distortions in the law, lessen opposition to the law from employers, and have little effect on coverage. Alternative sources of revenue would have to be found to compensate for the federal loss of penalties. Both the elimination of the mandate and creating a new source of revenue to replace it will require legislation. Current legislation before Congress proposes to move the employer requirement from employers of 50 or more workers to employers of 100 or more. While this approach would help those firms between 50 and 99 employees and decrease the exposure to adverse incentives within that group, it shifts the threshold where labor market effects could take place to a different point and does not address the concerns of large, low-wage firms. The individual mandate, together with the Medicaid expansion and income related subsidies, is, as we have shown elsewhere,14 critical to expanding coverage under the ACA; the employer mandate is not.

Study Questions Need For Employer Health Care Requirement

By John YdstieNPR, May 28, 2014

A study called “Why Not Just Eliminate the Employer Mandate?” has been published by the Urban Institute, a center-left think tank based in Washington, D.C. It lists a number of reasons why dropping the mandate might be a good idea.

Linda Blumberg, one of the authors, says first of all, requiring firms to offer health insurance could be a bad deal for lots of low-wage workers.

“A lower-income worker is going to do better, most likely — financially — by getting subsidized coverage through one of the health insurance marketplaces instead of through their employer,” she says.

That’s because many of those workers make so little that they qualify for free coverage under Medicaid. Even workers making as much as 2 1/2 times poverty-level wages would get subsidies in the Obamacare exchanges, and that could make it a better deal than the coverage provided by their company.

Employer-sponsored plans do make sense for lots of workers because they allow those workers to buy their insurance with tax-free dollars. But for low-income workers who may not pay any income tax, there’s little benefit.

The Urban Institute study also concludes that the employer mandate won’t be very helpful in increasing insurance coverage. It finds that only about 200,000 more people will be covered under the mandate.

So, with these kinds of negatives, what’s the incentive for hanging on to the employer mandate?

Jon Gruber is an economist at the Massachusetts Institute of Technology who helped design the Massachusetts health care exchange under then-Gov. Mitt Romney. Gruber, who also consulted with the Obama administration on the Affordable Care Act, says that the most important incentive is money.

“The right way to think about the employer mandate is really as a revenue-raising tool,” Gruber says. “It does raise a lot of money.”

Gruber says the mandate has its pluses and minuses, but he says there’s about an even chance it won’t ever take effect.

“The strongest argument probably for getting rid of this is political, which is that while this is really not a very fundamental piece of the law, it’s catching a huge share of the flak around the law,” he says.

The Obama administration continues to stand behind the employer mandate, arguing that it will help get health insurance to more people and save taxpayers money.

The Affordable Care Act is a highly inefficient, expensive, and administratively complex method of expanding health care coverage. One of the complexities is the mandate for employers to provide health insurance for their employees. The Urban Institute asks if the employer mandate should be eliminated, but is this the right question?

Once it was decided to use a multi-payer model of a multitude of private health plans and public programs to expand health care coverage, it was recognized that the funds provided by employers for their health benefit programs were an important revenue source in funding our national health expenditures. To ensure that those funds would still be there, the mandate for employer participation was included in the legislation.

This analysis by experts at the Urban Institute reveals that eliminating the employer mandate would result in only a modest increase in the numbers of uninsured – maybe 200,000 – though other estimates are higher. Of course, those individuals who would not be covered may not agree that this would be only a “modest” impact of this policy change.

The primary benefit would be to end the opposition of the business community. Some businesses would encourage their employees to obtain their coverage though government-subsidized exchange plans or the government-financed Medicaid program.

The Obama administration is opposed to this change since it would reintroduce the problem they were trying to avoid – finding new sources of government revenue to pay for the increases in enrollment in these tax-supported programs. But Jonathan Gruber suggests that the politics behind this unpopular provision may force the change.

So should we be asking if eliminating the employer mandate is a wise decision? It would be only one tweak in a highly complex system which supporters agree requires a great multitude of tweaks. The problem with incremental repair of this system is that the basic structure will still remain highly inefficient and will continue to waste tremendous resources, while falling short on on the goals of universality, equity, and affordability.

No, the correct question is, should we replace our highly dysfunctional health care financing system with an efficient, equitable, truly universal, affordable single payer national health program? Presumably only uncaring ideologues would answer in the negative.

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Physicians for a National Health Program's blog serves to facilitate communication among physicians and the public. The views presented on this blog are those of the individual authors and do not necessarily represent the views of PNHP.